New Massachusetts Law Will Tax Uber And Lyft To Bail Out Taxi Industry, As Taxi Medallions Plunge

SAN FRANCISCO, CA - JUNE 12: A Lyft car drives next to a taxi on June 12, 2014 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)

Taxing Uber and Lyft to bailout their flailing taxi competitors makes about as much sense as taxing car makers to rescue the horse-and-buggy industry or taxing DVDs to save VHS tapes. Massachusetts did it anyway.

Under a new law signed by Massachusetts Gov. Charlie Baker, the state will impose a 5-cent fee on every trip taken with Uber and Lyft and funnel that money as “financial assistance” to their taxi competitors. The collected fees would “encourage the adoption of new technologies” and “support workforce development” for taxi businesses. As Reuters (and not The Onion) reported, the new fee “appears to be the first of its kind” and “may raise millions of dollars a year.”

These new fees levied would amount to bailout of Boston’s taxi industry, which has long benefited from government attempts to create a cab cartel. For years, Boston capped the number of taxi medallions (i.e. the permit to own or lease a cab) at 1,825. Medallion prices skyrocketed. A SEC filing by Medallion Financial estimated that the Boston medallion market was worth over $1.2 billion until recently. In 2014, taxi medallions even sold for $700,000.

But with Uber, Lyft and other ride-hailing companies entering this ossified market, traditional taxis were now facing greater pressure to compete. Boston saw taxi ridership plunge by 22 percent in the first half of 2015. That reduced fare revenue by $33 million or 25 percent, the Boston Globe reported.

In turn, with less demand, the average price for a Boston medallion plunged by 40 percent by late 2015, according to CommonWealth. Today, owners are attempting to sell medallions for under $180,000.

As in other cities, medallion owners have litigated in an attempt to stop progress. Recently, the Boston Taxi Owners Association sued the city and demanded “the payment of just compensation” for its troubles. By allowing companies like Uber and Lyft to operate, the Association argued, medallion owners were victims of a constitutional “taking,” on par with eminent domain. But in March, a federal judge dismissed that claim, ruling that “a medallion owner has no right to exclude others from the market.”

In reaching his decision, Judge Nathaniel Gorton relied on an opinion by the Eighth U.S. Circuit Court of Appeals that rejected a similar lawsuit in Minneapolis. Back in 2006, the Minneapolis City Council voted to scrap its decades-old limit on taxis. As in Boston, taxi owners retaliated with litigation, claiming that deregulation amounted to a taking. The appellate court disagreed, and sided with the Institute for Justice, ruling that taxi licenses do not “provide an unalterable monopoly,” and unanimously dismissed the owners’ claims.

The ruling by Judge Groton also gave regulators six months to devise new regulations, which ultimately prompted the bill just signed by Gov. Baker. Until recently, regulators hadn’t quite kept up with innovation. For instance, the agency responsible for regulating taxis is quite literally called the Hackney Carriage Unit of the Boston Police Department.

Although the taxi tax is clearly anticompetitive, Uber and Lyft do stand to gain from other provisions in the new law. Ride-hailing companies will soon be able to pick up passengers at Boston’s convention center and airport. Moreover, a proposed provision to fingerprint ride-hailing drivers was scrapped. (In May, after voters in Austin, Tex. approved a background check, Uber and Lyft immediately pulled out.)

An even better option would be to jettison both the Uber tax and the medallion system entirely. To better promote free market fairness, regulators should create an even playing field for both Uber and taxis, with few regulatory speed bumps. In 2014, the Milwaukee Common Council did just that, eliminating its cap on taxi permits, in response to a previous IJ court victory. The new ordinance also allowed Uber and Lyft to operate legally.

But as long as Massachusetts’ Uber tax is on the books, the state is creating a real-life version of the Handicapper General. As the head of one ride-hailing service in Boston so aptly put it, “I don’t think we should be in the business of subsidizing potential competitors.”